When you consider the common saying that the house always wins, you might think that online casinos are among the most profitable businesses – for every big win, there are thousands of losses. However, this is not entirely accurate as the cost of running an online casino can be quite high, especially in terms of marketing and advertising.
With the commercialization of the internet and an increasing number of people using mobile devices, the online gambling industry is now worth billions of dollars. But how much do online casinos make? To compare the profitability of online casinos with other businesses, we need to consider the revenue, net profit margin, and the cost of doing business.
Before you embark on your quest to enable people to play slots, roulette, or poker online, it’s vital that you understand the basics of the online casino business. And below, you’ll find some of the most important things you need to know about their profitability.
In short, online casino revenue is the total amount that players bet minus the amount they win, and it’s what online casinos make before any expenses. Most of the revenue of online casinos comes from slots, as they are one of the most popular games at online casinos – they are easy to play and offer players a chance to win big while having a low entry fee.
When we consider the revenue of online casinos, it’s important to look at the RTP (return to player). The RTP is the percentage of the bet that a player receives back as winnings. For instance, if you place a $100 bet on an online slot game with an RTP of 96%, then you can expect to receive $96 as winnings. That is, provided that you don’t have any other wins during the game session.
Net Profit Margin
If we look at the revenue generated by online casinos, we can say that the net profit margin is the percentage of revenue that makes up net profit, or the overall profitability of online casinos. It’s calculated by dividing the net profit by overall revenue.
To make it simpler, the higher the net profit margin of a casino, the more profitable it is. In most cases, the net profit margin of online casinos is between 3% and 8%, depending on the number of players, costs, and other factors. The biggest players, however, go as far as 50%, which is considerably higher than the industry average.
Now, the big question is, what are the operational costs of online casinos? Although the expenses related to running online casinos can be lower than those of running a brick-and-mortar house, they still come with costs – and the scalability can be a bit tricky.
Generally speaking, the operational costs of running an online casino can be divided into three categories: infrastructure, marketing, and licensing.
This includes everything from the domain name and hosting of your website to the setup of payment processing services.
Factors such as domain name, hosting, and website maintenance are relatively easy to calculate; depending on the website traffic, you can expect to pay anywhere from $10 up to a few thousand dollars per month.
It gets more difficult when it comes to the more complex elements of your casino platform. For example, many developers now ask you to pay for their games in the subscription model, meaning that you need to pay a monthly or annual fee for every game or bundle. The same goes for payment processing services, which are essential for any online casino – typically, they get a small percentage of every transaction.
The costs of marketing and advertising depend on your approach. You can opt for paid advertising, which, if done right, can be quite effective and make your casino reach the top of search engines. Unfortunately, big ad platforms, such as Google Ads or Meta Business Suite, are restricted when it comes to online gambling, so you might need to get creative.
Alternatively, you can implement some SEO (search engine optimization) strategies to make your website rank higher on search engines, which can bring in organic traffic. The majority of online casinos choose a combination of both, as paid ad campaigns are a great way to get the initial traffic on your website and attract new players.
You can also go with traditional media, however, this is quite costly, and it’s not as effective for online casinos. The only benefit of using traditional media is that you can stand out from the crowd – but this is not enough to make up for the high costs.
Finally, the licensing costs can be quite substantial as well. Here, the most important factor is where your casino will be based – some jurisdictions have no licensing requirements, while in others, you need to apply for a license from the gambling commission.
Of course, the licensing cost is not the only thing you need to consider. You might need to adhere to certain regulations, so as your business grows, you may want to hire a compliance officer to make sure that everything is running smoothly.
To Sum Up
So, what can we say about the profitability of online casinos? Although they are very profitable, it’s essential to keep in mind that they come with some costs as well – an inevitable part of running any business. If you take all of these factors into consideration, then it’s fair to say that online casinos can be extremely profitable.
This doesn’t mean that you will be making millions the very next day, but if you do your research and take care of the essentials, both in terms of the design and marketing, you can expect to see a solid return on your investment.